29 May, 2009 - deVere Insight - 29th May 2009

VIEWS – In this edition we feature the views on Fixed Interest from HSBC Private Bank

http://www.hsbcprivatebank.com/perspective/market-views-fixed-income.html

and the Global Market Outlook from Fidelity International

http://www.fidelity-international.com/docs/volatility/GlobalMarketUpdate.pdf

HEADLINES

Data raises hopes worst of downturn may be over

Pound jumps to 6-month high vs dollar

Europe shares close higher, up for third month

World to emerge from crisis "early 2010"

Oil hits 6-month high above $66

FTSE ends up in May

U.S. economy contracts less in Q1

CURRENCIES –

Sterling jumped to its highest level in more than six months against the dollar on Friday and was on track for its biggest monthly gain since 1985 as improved investor sentiment stoked demand for riskier currencies.

Increasing optimism that the global economy is over the worst of the recession, helped by firmer economic data out of Japan and Germany, sent the dollar tumbling to its lowest level this year against a basket of currencies.

Concerns about mounting U.S. debt also weighed on the dollar, while gains in equities and commodities, including a 1.5% rise in UK shares and oil prices at a 6-month high, buoyed perceived higher risk currencies such as sterling.

Hopes that the economy in particular is on the road to recovery continued to help sterling too, with Nationwide reporting a 1.2% rise in house prices during April.

"This is a story of broad dollar weakness against all of the major currencies, and sterling has been amongst the best performers," Brown Brothers Harriman currency strategist Audrey Childe-Freeman said.

"Let's not forget too that when the dollar was strengthening, sterling was always one of the worst performers. The momentum in sterling is strong and it could move higher," she added.

At 3:16 p.m., sterling rose 1.1% against the dollar to $1.6105, having earlier hit its highest level since early November at $1.6183.

So far this month sterling has risen by around 9% against the U.S. currency, leaving it on course for its biggest monthly rise since March 1985.

Against a broadly stronger euro, the pound dipped, however, with the single currency up 0.2% at 87.66 pence as month-end buying in the euro against the dollar supported the European unit.

There was further good news from major retailer John Lewis, which reported its strongest week of the year so far, with department store sales up 2% last week.

A consumer confidence survey gave mixed signals, however, with an improvement in Britons' expectations for their own finances offsetting rising gloom over the economy.

The GfK/NOP index was unchanged at -27 this month, ending three months of consecutive gains and coming in just below the consensus forecast of -25.

Although market participants cheered the rise in UK house prices reported by Nationwide, some analysts warned against getting carried away, arguing the Bank of England still has its work cut out to get a weak economy growing again.

"Housing market activity remains very low by past norms and our expectation is that the pick up in activity will be both gradual and fitful for an extended period given still very poor economic fundamentals and relatively tight credit conditions," Global Insight economist Howard Archer said.

Focus next week will turn to the Bank of England's policy meeting on Thursday. Rate-setters are fully expected to leave interest rates on hold at their record low 0.5% and focus will centre on any news on the central bank's quantitative easing programme.

Median forecasts in a poll conducted by Reuters showed analysts expect the bank will eventually spend 150 billion pounds on the programme, with 50 out of 57 polled saying the plan will be effective or very effective.

The Bank announced a £50 billion top-up to its programme of asset purchases earlier this month, taking its current fund up to £125 billion.

MARRAKECH - The global economy is likely to emerge from crisis early next year but even after that financial systems will need to be monitored closely, the head of the International Monetary Fund said on Friday.

"We expect to get out of the crisis early in 2010, especially if a clean-up of certain segments of the financial system is carried out," IMF Managing Director Dominique Strauss-Kahn told a conference in Morocco.

"We should not forget the task of continuing to monitor the global system once we emerge from the crisis," he said.

Improving economic news has been emerging across the globe lately, from U.S. GDP to Japanese factory output and British house prices to German retail sales, raising hopes that the world economy was responding after months in intensive care.

U.S. data on Friday showed the giant economy did less badly than government had feared in the first quarter, shrinking 5.7% instead of the initial forecast of 6.1%.

Speaking later in a panel discussion, Strauss-Kahn said signs that the effects weighing down the global economy were easing would become clearer in September and October this year, with growth returning early in 2010.

But he added: "The return to growth does not mean the end of the consequences of the crisis."

In his speech earlier, Strauss-Kahn said there were lessons that the international financial community should draw from the crisis.

"We draw two conclusions," he said. "We have an awareness of the global climate but we do not have a ready answer for that global reality." 

NEW YORK - Improving vital signs across the globe, from U.S. GDP to Japanese factory output and British house prices to German retail sales, raised hope on Friday the world economy was responding after months in intensive care.

The U.S. economy shrank 5.7% from the first quarter of 2008, less than the previous estimate of 6.1% and slightly worse than market expectations for a 5.5% fall.

The report confirmed that economic activity declined for three straight quarters for the first time since 1974-1975, but U.S. stocks  rose in part on data showing corporate profits after taxes increased 1.1%, the first increase in a year and a turnaround from a 10.7% drop in Q4.

"It's supportive in that it's not as bad. It's better than down 6.1% originally. It's another set of data that's not as bad as expected," said Frank Lesh, a futures analyst and broker at Futurepath Trading.

World stocks traded around 2009 highs and the dollar weakened in part on sentiment that worldwide recovery was nearing and the greenback was no longer so crucial as a safe haven. The dollar has also been falling on worries about the ballooning U.S. budget deficit.

The potential General Motors bankruptcy also hovered over the world financial picture as GM shareholders and bondholders braced for a Chapter 11 bankruptcy expected by Monday's restructuring deadline.

With U.S. and foreign automakers, suppliers, workers and retirees all holding a stake in the outcome, GM and Canadian auto parts group Magna International reached an agreement in principle that could rescue GM unit Opel.

But the German government, which is trying to protect the future of Opel, said there was no guarantee a final deal could be reached on Friday. Italy's Fiat, a potential buyer for Opel, skipped a crucial round of talks in Berlin and complained that "more cannot be asked" of it for a takeover. 

DUBAI - The total value of land transactions in Dubai last week reached Dh1.79 billion, of which sales exceeded Dh1.14 billion.

The total value of mortgages during the period was Dh655.91 million, according to the Land Department.

A total of 90 sale transactions were registered with the Department by the end of the week, the most valuable of which was a plot in Jebel Ali that was sold for Dh29.88 million.

The next two most prominent sales saw a second plot in Jebel Ali acquired for Dh28.80 million and another in Jebel Ali for Dh24.75 million.

The Emirates Hills 2 area was the most active in terms of the week's sales, with some 22 transactions. Emirates Hills 3 followed it with 10 sales.

During the period, Emirates Hills 2 recorded the highest turnover by value, at Dh88.89 million, followed by the Jebel Ali area, Dh83.45 million, and Palm Jumeirah area, Dh71.37 million.

The biggest area sold was the 72,418-square-foot plot in the Al Barsha South 3 area, which went for Dh19.01 million.

A 43,614-square-foot plot in the Emirates Hills 3 area was acquired for Dh7.07 million, while 43,614-square-foot area in Emirates Hills 3 was disposed of for Dh8.72 million.

During the period under review 63 mortgages worth Dh433.53 million were registered.

Villas in freehold areas witnessed the registration of 533 sales transactions out of which 481 were for apartments for a total of Dh397.32 million and 52 for villas at a total of Dh88.58 million.

WASHINGTON - The U.S. economy contracted slightly less than initially estimated in the first quarter, while corporate profits rebounded, according to a government report on Friday that pointed to moderation in the recession.

Perceptions that the worst of the 17 month old downturn was over pushed consumer confidence to its highest level in eight months in May. A report showing business activity in New York City expanded in May for the first time since January 2008 offered a further hint the recession was abating.

Gross domestic product, which measures total goods and services output within U.S. borders, dropped at a 5.7% annual rate in the first quarter, the Commerce Department said, less than the initial 6.1% estimate. The decline followed a 6.3% contraction in the fourth quarter.

While the drop in activity was still steep, recent data have suggested the rate at which the economy was tumbling was easing and many economists expect growth to resume by year-end.

Still, output has declined for three straight quarters for the first time since 1974-1975 in a contraction that is the deepest since at least the 1950s. Already, the recession is the longest since the Great Depression, although much less severe.

"The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5%. It should be the last of the negative quarters," said Christopher Low, chief economist at FTN Financial in New York.

But the positive outlook for the economy was tainted somewhat by a report showing business activity in the country's Midwest unexpectedly fell sharply in April, likely reflecting troubles in the automotive sector.

That report caused U.S. stocks to surrender earlier gains, while government bond prices rose modestly. 

ABU DHABI - All projects of the state-owned Abu Dhabi National Oil Company (Adnoc) are on track despite the current global economic downturn, a senior company executive said here on Thursday.

"At Adnoc, we are going ahead with all our projects. We are not stopping," Ali Rashid Al Jarwan, general manager of Abu Dhabi Marine Operating Company (Adma-Opco), an Adnoc group company, told reporters on the sidelines of a two-day conference on preparing future leaders in the oil and gas industry.

Yousef Omair Bin Yousef, Adnoc's chief executive officer, said on Monday the company plans to award projects worth up to $50 billion (Dh184 billion) in 2009-10.

"In Adnoc we look at the bright and positive side of the crisis which has created a window of opportunity in order to execute our giant projects at lower cost and better quality," Bin Yousef said at the opening of the Gastech-2009 exhibition and conference in Abu Dhabi, which ended yesterday.

Badria Khalfan, Human Capital Manager at Adma-Opco said there have been "no layoffs in the entire Adnoc group" resulting from the impact of the global economic crisis.

"We are still hiring and expanding," said Khalfan.  The Adnoc group has about 15,000 employees.  Al Jarwan said Emiratisation in Adma-Opco is currently 54%.

HONG KONG - Hong Kong shares jumped 1.6% on Friday, with the main index finishing above 18,000 points for the first time since October 2008, as energy issues were propped up by higher oil prices and banks were lifted by favourable broker ratings.

The benchmark Hang Seng Index was up 285.73 points at 18,171.00, piling on 6.4% for the week.  The China Enterprises Index of top mainland companies was 2.2% higher at 10,428.19.

MEXICO CITY - Mexico's peso strengthened and stocks gained on Friday after data in the United States and Japan fueled hopes the worst of the global economic downturn is over.

The peso traded 0.57% stronger at 13.176 per dollar, giving up some earlier gains after the central bank said it would trim sales of Mexico's dollar reserves.

The IPC stock index rose 0.50% to 24,781 points, led by retailer Elektra, which jumped 4.59 percent.

Revised first-quarter U.S. GDP figures showed less of a contraction than initial estimates, while another report showed Japanese factory output jumped in April at its fastest rate in more than a half century.

The data boosted "further speculation that the worst of the global recession may be over," RBC Capital Markets said in a note to clients.  Mexico sends about 80% of its exports to the United States.

But holding the peso currency back from further gains, Mexico said on Friday it will reduce dollar sales meant to boost the peso since the currency has recently stabilized.  Before the announcement, the peso had strengthened to as high as 13.04 per dollar.

In stock trading, holding company Carso Telecom, which is owned by Mexican billionaire Carlos Slim, drove the rally, gaining 1.01% to 51.98 pesos. Slim uses the company to control fixed-line telephone giant Telmex.

Banorte bank, which on Thursday said it would soon list its shares on the Madrid stock exchange, rallied 2.89% to 31.36 pesos.

Cement maker Cemex advanced 1.49% to 12.95 pesos, while its New York traded shares gained 2% to $9.85.

JOHANNESBURG - South Africa's Imperial Holdings Ltd is in talks about selling its 49.9% stake in asset financier Imperial Bank Ltd to joint owner Nedbank Group, it said on Friday.

Imperial and Nedbank each own about 50% of Imperial Bank, which provides loans for vehicles and property, and which had net interest income of 1.7 billion rand ($213.3 million) as of Dec. 31, 2008.

Shares in Imperial rose nearly 4% after the announcement and one analyst said the deal would allow it to focus on its main activities of auto retail and rental and logistics.

"Selling the stake is probably part of a new strategy, and it might give them more time and energy to focus on its core business," one analyst said.

Shares in Imperial Holdings were up 2.01% to 59.98 rand, outpacing a firmer JSE Mid-cap index, while Nedbank stock was up 0.93% to 91.39 rand.

Imperial, which provided no further details about the discussions, said that, if concluded, the deal may affect the price of its shares. Nedbank said a further announcement would be made in due course.

Analysts were unable to say how much Nedbank, South Africa's fourth biggest bank, would pay for the stake but said it made strategic sense for the bank.

"Nedbank provides funding (for Imperial Bank), it probably makes sense for them," a Cape Town-based analyst said, adding Nedbank would need to diversify Imperial Bank away from reliance on Imperial Group's auto and logistics businesses.

Nedbank currently provides risk management support to the joint venture, whilst Imperial provides access to its extensive network of business operations throughout South Africa.

FRANKFURT - German small and midcaps are faring much better than large companies during the current market recovery, offering high returns for risk-prone investors, according to a Credit Suisse fund manager.

"Small and midcaps generally perform best at turning points. This is because they're more volatile and illiquid as an asset class, which means that the risks are higher but they also offer higher returns," said Felix Meier, who manages the bank's Equity Fund Small and Mid Cap Germany B.

The fund, with a volume of about 140 million euros (£122 million), has gained about 10.4% this year, outperforming its benchmark, the Xetra Midcap PF Index, which added 7.1% in the same period.

The Midcap PF Index combines Frankfurt's midcap and technology stocks in one index, and has outperformed German blue chips by 53% since the top-30 index hit a five-and-a-half-year low in early March.

"Small and midcap stocks, in general, react much more strongly to a recovery than large caps. (This holds true) especially now that the credit markets are de-frosting again and macroeconomic data indicate that the low point has been reached or passed," he said, pointing to recent Ifo and ZEW data.

The Munich-based Ifo institute's business climate index, based on a monthly poll of some 7,000 firms, rose this week for a second straight month, nurturing hopes that Europe's biggest economy might have passed the worst.

Last week the Mannheim-based ZEW economic think tank's monthly poll of economic sentiment hit a 3-year high.

PRAGUE - Slovakia and the Czech Republic signed agreements on Friday to build a nuclear reactor in Slovakia at an estimated cost of 4-6 billion euros ($5.6-$8.4 billion) to increase the country's energy independence.

Under the contracts, Czech majority state-owned utility CEZ and Slovak state energy company JAVYS formed a joint venture to build and operate the new plant at Jaslovske Bohunice in western Slovakia.

The Slovak firm will take a 51% stake in the venture.

In central and eastern Europe, Bulgaria, Romania, the Czech Republic and Poland are all planning to build nuclear plants.

Poland aims to build at least one by 2020. Hungary passed a resolution in March allowing for preparatory work to begin on extending the Paks nuclear power plant.

Slovakia became dependent on electricity imports after it had to shut two 440 MW units at the Soviet-designed Bohunice nuclear plant as part of the agreement to enter the European Union. Slovakia still operates two units at Bohunice.

The country has already decided to complete two extra semi-built units at its second nuclear power plant at Mochovce, a project led by Enel unit Slovenske Elektrarne.

Neither side in Friday's agreement would unveil how they plan to finance the project, saying details including size of the unit and timetable should be known after a feasibility study is ready in 2010.

The Czech Republic is a net exporter of electricity but Prime Minister Jan Fischer warned on Friday the country would turn into an importer as of 2015, before the planned construction of two new units at CEZ's Temelin nuclear plant and other energy projects come on line around 2020.

SAO PAULO - Brazil's currency gained sharply on Friday, heading for its biggest monthly surge in more than six years, on rising investment inflows to Latin America's largest economy.

The real BRBY strengthened 1.9% to 1.971 per U.S. dollar, crossing the psychologically important 2 per dollar mark for a second session in three. The currency soared 10.4% in May, the biggest monthly rally since April 2003.

Brazil's currency rally tracked the dollar's plunge against a basket of major global currencies as increasing optimism that the global economy is over the worst of the recession buoyed demand for riskier assets.

"The trend really is for a strong real as the crisis dissipates," said Marcos Forgione, currency trader at the B&T brokerage in Sao Paulo.

Yields on interest rate futures contracts were mostly lower on expectations a stronger Brazilian currency will ease inflation pressures and pave the way for the central bank to cut the benchmark Selic rate further from an all-time low of 10.25%.

Brazilian stocks fell, weighed by concerns on Wall Street over the looming bankruptcy of automaker General Motors Corp. and data showing much deeper than expected business activity slump in the U.S. Midwest.

The benchmark Bovespa index of the Sao Paulo stock exchange dropped 1.1% to 52,436 points. Despite the losses on Friday, the index has jumped 11% in May, its third straight month of gains.

State-run energy giant Petrobras fell 1.5% to 34.12 reais, its first decline after gaining 6.6% over five straight sessions, even as crude oil prices jumped 1.6% in New York CLc1. 

Mining giant Vale dropped 1% to 32.57 reais. 

WARSAW - Polish coal miner Bogdanka has set a price range of 42-48 zlotys per share in its initial public share offer, valuing Warsaw's largest market flotation so far this year at up to 528 million zlotys ($164 million), it said on Friday.

Poland's centre-right government remains determined to push through several privatisation listings in the coming months starting with Bogdanka, hoping that the recent recovery on world markets will encourage investors to take part.

Bogdanka, which the price range values at 1.4-1.6 billion zlotys, said earlier it aimed to tap 450 million zlotys from the market in order to finance its ambitious investment plans.

The final issue price will be set on June 5 and the market debut is scheduled to take place by June 25.

The government wants to float a significant chunk of the country's largest utility Polska Grupa Energetyczna, estimated at 4-5 billion zlotys, and sell all of its shares at the only listed power producer Enea ENAE.WA.

Poland had a rough time selling shares in state-owned companies last year amid tumbling equity markets. Enea's IPO, the last such listing, was completed in November thanks to Sweden's Vattenfall, which took a 19% stake.

DUBAI - Some Islamic banks have imposed a maintenance fee of Dh25 on all saving accounts which have a balance of less than Dh3,000.   They also started handling these accounts like current accounts, which earn no interest.  The new charges came into effect from the first week of May, Al Khaleej Arabic daily reported.

These banks applied conditions if clients wished to have saving accounts without a minimum balance of Dh3,000 and without paying the maintenance fees.

These conditions include linking the account to a fixed deposit, thus making it the deposit's cash account, or acquiring another product of service offered by the bank.

The new fees do not apply to salary transfer accounts arranged by companies.

The banks attributed the fees to increasing costs in the past period, adding that they had to make such minor changes to offer good services.

TOKYO - The Nikkei stock average rose 0.8% to its highest in more than seven months on Friday, buoyed by commodity-linked firms such as oil and gas field developer Inpex and shippers like Mitsui O.S.K. Lines on growing expectations for demand from China.

In a jump just before the close, the benchmark cracked the 9,500 resistance level that it had failed to breach on several previous attempts, rising to close at 9,522.50, the day's high.

The Nikkei gained 71.11 points, having broken above its 200-day moving average, which had been acting as resistance, earlier this week.  It rose 3.2% on the week, its biggest weekly increase in three weeks. For the month, it was up 7.9%, logging its third straight month of gains, the first such stretch since mid-2007.

The broader Topix rose 0.3 percent.  A surge in commodities, fired by demand from China, buoyed a wide range of shares.

The Baltic Exchange's main sea freight index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, rose on Thursday to an eight-month high, helped by China's demand for goods.

Mitsui O.S.K. Lines rose 5.1% to 676 yen, Kawasaki Kisen gained 6.4% to 431 yen, and Nippon Yusen climbed 5.3% to 456 yen.

The sea transport sub-index jumped 5.5%, becoming one of the biggest gainers among the sub-indexes.

Inpex rose 6.3% to 771,000 yen and Showa Shell Sekiyu gained 4% to 942 yen. But Nippon Oil rose only 0.4% to 580 yen.

Sumitomo Metal Mining, a smelter of non-ferrous metals, edged down 0.6% to 1,348 yen in the last few minutes of trade, but has gained almost 19% over the past two weeks on expectations of a global pick up in demand for industrial and precious metals.

Fellow smelter Dowa Holdings rose 1.2% to 424 yen.

Copper futures HGN9 hit a three-week high on Thursday after strong U.S. manufacturing data, while gold climbed to a two-month high, supported by a weaker dollar and its appeal as an inflation hedge on rising oil prices.

But Seven & I Holdings Co Ltd fell 1.7% to 2,300 yen after media reports that Japan's Fair Trade Commission plans to order the company's convenience store unit Seven-Eleven Japan to stop restricting merchandise markdowns by franchisees.

Citing sources familiar with the matter, Kyodo News said the FTC found that Seven-Eleven had been forcing franchisees not to cut prices even when some stores wanted to clear food items that were near their expiry dates, a practice deemed by the watchdog to be an abuse of the retailer's dominant position.

Market analysts said the direction the Nikkei would take from here was uncertain without some fresh trading factors.

"We've come this far on expectations, but this is about as high as we can get. Now we need some more good news," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Japan's industrial output jumped 5.2% in April from the previous month, marking the second straight month of increase as companies continue to restock after a heavy run-down of inventories late last year.

But the jobless rate rose to a 5½ year high of 5.0% in April, while household spending fell 1.3% from a year earlier and Japan moved deeper into deflation.  "There's some thinking that the forecasts are a bit too optimistic, that too much is being expected of possible economic recoveries in India and China," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"The market is also waiting to see what may happen with GM."

The U.S. government's deadline for any bankruptcy filing is on Monday, and President Barack Obama is expected to discuss the automaker's restructuring at that time.  But others said the market was already looking elsewhere.

"If GM went bankrupt at a time when people said it wouldn't, that would be huge, and of course there's the chance of some reverberations later on," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.

"But right now people seem to be paying more attention to cash flows, as seen in recent moves in U.S. Treasuries and commodities."

Trade was active on the Tokyo exchange's first section, with 2.6 billion shares traded compared to last week's daily average of 2.1 billion.  Declining shares outnumbered advancing ones 876 to 698.

CHINA - The Agricultural Bank of China is set to open in New York and London, building a round the clock commodity trading team and taking global Beijing's ambition to be a major force on commodity markets.

With the move, Agbank will become the last of China's Big Four to establish a branch in the West's global financial centres, where peers, including Industrial and Commercial Bank of China, now the world's largest bank by market value, have already opened shop.

However, Agbank's approach will differ from its foreign exchange-oriented peers by focusing on trading in agricultural commodities and derivative products such as grain and corn, among the few markets in which China is not a dominant player.

The timing may be ideal as Agbank will go into head-on competition with commodity trading giants Goldman Sachs and Morgan Stanley, as well as up and comers like JP Morgan, at a time when they've had their wings clipped by the financial crisis.

It also comes as Beijing begins to use its growing leverage as the world's biggest importer of many key raw materials to its advantage on price, including holding out for cheaper iron ore contracts, stockpiling copper, forming joint ventures and extending billion-dollar government loans in exchange for oil.

While China is the biggest importer of soybeans, it trades very little wheat or corn, although many analysts expect it will eventually be forced to buy these goods abroad, a move almost certain to trigger a buying frenzy in the Chicago trading pits.

Three sources with direct knowledge of the plan said Agbank had hired consultants and lawyers to prepare applications for branch licences in the United States and Britain. Agbank already has UK representative offices, which do not allow it to offer banking services to clients.

"Currently, Agbank only has branches in Asian cities like Hong Kong and Singapore," said one of the sources, who, like the others, declined to be identified because they are not authorised to speak to the media.

"To build itself into a true international bank and a leading commodities trader, it must have branches in the West so it can operate a 24 hour non-stop trading system," he added.  Agbank was not immediately available for comment.

Despite increased anxiety in Beijing over financial derivative trade overseas, in March it ordered state-owned corporates to quit any high-risk deals after a number of forex and commodity hedges went bad, policymakers are also cautiously encouraging the growth of the underdeveloped sector in China.

Agbank stands to win the business of thousands of mid-tier Chinese corporates increasingly exposed to global commodity costs, and could provide a gateway to international players who are desperate to break into the burgeoning Chinese market.

"They have to do a few things right at the global level to build a track record and convince people to do business with them. But certainly, it's a step in the right direction," said a senior Singapore-based executive at a global investment bank.

Agbank plans to complete establishment of the two branches before it goes public, said the sources, adding that an initial public offering of shares was unlikely to take place this year.

Agbank, which received a huge government injection late last year, raised 50 billion yuan through subordinated bond issuance earlier this month, having its capital adequacy ratio far above the minimum requirement of 8%.

"From the financial angle, Agbank is well qualified to win branch licences in New York and London, but I believe the regulators will be more concerned about its internal control, shareholding structure and anti-money laundering," said the source.

Agbank has, and won support from, the Chinese government for its foreign branch plan, said the sources.

"We have not received the application," a Federal Reserve spokeswoman said, about Agbank's plan for a New York branch. She declined to comment further.

MOSCOW - State-owned Russian Railways plans to order high-speed trains worth up to 550 million euros ($770 million) from Canada's Bombardier Inc as part of a push to develop the Olympic venue of Sochi, an executive said.

First Vice President Fyodor Andreyev said on Friday Russian Railways could order up to 54 trains from Bombardier, the world's No. 1 passenger train builder, to serve the region around the Russian city hosting the 2014 Winter Olympics.

"All the trains should be supplied by 2013," Andreyev told reporters. He said the value of the order was likely to be between 500 million euros and 550 million.

Russia has pledged to spend about $12 billion developing Sochi on the Black Sea coast for the Olympics and the purchase of modern trains from a foreign supplier underlines its determination to host a showcase international event.

Russian Railways' press service said the company would not use part of the $12 billion earmarked by the state for the Bombardier deal. Andreyev said the company might raise a syndicated loan for the purchase. He gave no more details.

The financial crisis has left half of Russia's own train building factories idle as demand has plummeted.

Russian Railways has already placed an order worth 276 million euros with German engineering company Siemens AG for eight high-speed trains to serve major intercity routes from Moscow. This agreement includes additional maintenance costs of more than 354 million euros over 30 years.

The state monopoly has also ordered four trains from France's Alstom for around 120 million euros.

Both Siemens and Alstom have invested heavily in Russia's dilapidated train-building industry and plan to build trains in Russia.

BANGKOK - Most Southeast Asian stocks eased on Thursday, as investors worried about the U.S. economic recovery, profit takers swooped on Singapore's CapitaLand and Malaysia fell for a third day on a bearish GDP outlook.

Asian shares came off a seven-month high as concerns grew that rising U.S. government debt yields could push up borrowing costs and choke off a potential recovery in the world's largest economy.

At 1001 GMT, the MSCI index of Asia-Pacific stocks outside Japan was down 0.05%.  Stocks in Southeast Asia were volatile this week amid uncertainty over the global outlook and weaker than expected first quarter GDP numbers from Thailand, Malaysia and the Philippines, analysts said. 

"The market has been inclined to say the worst of the downturn is behind us, and hope that growth could resume on a positive trajectory as we move into the second half of the year," David Cohen, Director of Asian Economic Forecasting for Action Economics said.

"But there is certainly enough cloudy data out there to make people unsure about how much of a rebound we're going to see. So the market has been a little jittery," he said.   Singapore's Straits Times Index fell 0.6%, erasing a 3% rise to an eight-month high on Wednesday.

Developer CapitaLand slid 2.4%, while lender DBS Group was off 1.7%.  Malaysia's index fell for a third day, ending down 0.6%, after Prime Minister Najib Razak said the domestic economy would shrink by as much as 5% in 2009, its biggest fall in a decade. 

Among decliners in Kuala Lumpur, mobile phone operator Axiata Group fell 4.1% and Kuala Lumpur Kepong, the third largest listed planter, dropped 3.4%.  The Philippines ended down 0.1%. The country's economy shrank a seasonally adjusted 2.3% in the first quarter, its weakest performance in two decades.

Thailand's benchmark SET index ended unchanged, while Vietnam lost 2.3%. Indonesia's index added 0.5% after a 1.9% gain on Wednesday.

In Jakarta, the largest automotive distributor, Astra International rose 4.8% and cigarette maker Gudang Garam jumped 10.6%.  Bank shares led the Thai market lower, with Bangkok Bank down 0.3% and Kasikornbank off 1.35.

Moody's Investors Service said on Wednesday it was reviewing 11 banks in Thailand for a possible downgrade.  Brokers said the review would put more pressure on banking stocks, but it was unlikely to have significant impact on the banks' operations.

“If Thai bank ratings are downgraded, the impact to the operations of the banks appears limited given their small exposure to foreign deposits, about 3.0% of total interest liability, and very little reliance on foreign borrowing," said Worawat Saisuphatphol, banking analyst at KGI Securities. 

ZURICH - Hamburg-based property fund manager Union Investment Real Estate AG said it bought the West-Park office building in Switzerland's Zurich-West development zone for 104.3 million euros ($145.4 million).

The 26,900 square-metre property was bought from West-Park Zurich AG on behalf of investors in Union's UniImmo: Global open-ended real estate fund.

The property is 94% let and its principal tenants include Schweizerische Post, chocolate manufacturer Barry Callebaut and management consultancy BearingPoint.

The deal comes less than a year after Union Investment made its debut investment in the district with the September purchase of the CityWest Gebaeude F office development for a sister fund, UniImmo: Europa.

UniImmo: Global has around 2.4 billion euros of property assets under management at present invested across 14 markets in Europe, the Americas and Asia.

COMMODITIES – Oil rose to a six-month high above $66 per barrel on Friday, on track for its largest monthly percentage gain in more than a decade, after U.S., Japanese and Indian data suggested the economic downturn may be easing.

Oil prices have jumped around 30% this month, the largest monthly rise since March 1999, buoyed by expectations of a global economic recovery later this year which helped push stock markets higher.

U.S. crude oil for July delivery was up $1.07 at $66.15 per barrel by 11:20 ET, after reaching a high of $66.47, its highest level since early November last year.  London Brent crude gained 97 cents to $65.36.

The dollar hit a five-month low against a basket of other currencies. A weak dollar makes oil cheaper for holders of other currencies and tends to support prices.

Data on Friday showed Japanese industrial production rose 5.2% in April on a monthly basis, and the government said it expected continued gains through June.

U.S. growth data on Friday also reinforced the sense that the global economic slump might be abating.

The Commerce Department said the world's largest economy contracted slightly less than initially estimated in the first quarter, dropping at a 5.7% annual rate, rather than the 6.1% fall published by the government last month.

The revision was nevertheless below market expectations for a 5.5% contraction for the January-March quarter.

India's economy grew faster than expected in the first quarter, helped by strength in farm and services sectors.

"Oil market participants' conclusion that the worst of the recession has passed and a recovery in demand must be at hand was bolstered overnight by higher-than-expected first-quarter growth in India and a sharp jump in Japan's April industrial production," said Mike Fitzpatrick, vice president at MF Global in New York.

Another supportive influence was Thursday's report by the U.S. Energy Information Administration on U.S. crude oil stocks, which fell 5.4 million barrels in the week to May 22, way above analysts' expectations in a poll for a 700,000 barrel decline.

Gasoline inventories also fell for the fifth week in a row as demand rose in the week proceeding the Memorial Day holiday, which traditionally marks the start of the summer driving season in the United States.

"The market has reacted to the headline figures," said Harry Tchilinguirian, analyst at BNP Paribas in London. "That has helped extend technical buying as we moved above the psychologically important 200-day moving average (MA)."

The front month for U.S. crude oil futures crossed up through its 200-day MA on its daily price chart on Tuesday and it is now acting as a strong support, according to technical analysts who track prices on charts.

OPEC's decision to hold oil production steady also helped prop up prices. The producer group on Thursday kept its output targets unchanged as expected, betting on a strengthening world economy and tentative signs of increased demand.

Analysts said Saudi Arabia's statement this week that the global economy could now cope with $75-80 a barrel oil was a shift from the world's largest oil producer, which has until recently hinted it would be happy with a lower price to help the world economy back on its feet.

Gold hit a three-month high of $966.80 an ounce as the dollar fell towards a five-month low versus a basket of currencies, with worries over soaring government debt prompting investors to sell the safe-haven currency.

Spot gold was bid at $966.40 an ounce at 0622 GMT, against $958.80 an ounce late in New York on Thursday.

ETF Securities said on Friday the amount of metal it holds to back its physical gold exchange traded commodities rose nearly 11,000 ounces on May 28.

The three gold-backed ETCs operated by the company, ETFS Physical Gold, Gold Bullion Securities and a small Australian fund - now collectively hold 7.488 million ounces of gold, against 7.477 million ounces the day before.

Holdings of the company's physical platinum and palladium products also rose on Thursday, by nearly 6,000 ounces or 2.2% and just over 5,000 ounces or 1.8% respectively.

Holdings of the company's Physical Silver were unchanged at a record 19.612 million ounces.

Exchange-traded funds, which issue securities backed by physical stocks of a particular commodity, have represented a major source of demand for precious metals in recent years.

MADRID - Troubled Scandinavian airline SAS said on Thursday it had signed a preliminary deal to sell a majority stake in its loss-making Spanair unit to a Spanish investor group, the latest step in a multi-pronged turnaround effort.

However, British investment fund First Mile Investment (FMI) said earlier on Thursday it still planned a rival Spanair bid.

SAS also announced on Thursday it had signed an agreement to sell its 47.2% holding in airBaltic to airBaltic's management for around 220 million Swedish crowns, resulting in a gain of approximately 175 million crowns.

Earlier this week, Latvia rejected an offer by SAS to sell its stake in airBaltic back to the state for 47 million lats ($95.39 million).

SAS has said it wished to sell its airBaltic shares because the Baltic state, the majority shareholder in airBaltic, had refused fully to privatize the airline.

Like others in the industry, SAS has been forced in recent years to contend with cut-price rivals and overcapacity. It has lost money in every quarter so far this year.

The carrier -- half-owned by the governments of Sweden, Norway and Denmark, said the Spanair deal was with a group of investors in Spain led by the Consorci de Turisme de Barcelona and Catalana d'Iniciatives.

LONDON - The blue chip index ended 0.7% higher on Friday, boosted by firmer house prices and steady consumer confidence, with commodity stocks and banks leading the way but defensive shares came under pressure. The FTSE 100 closed 30.40 points higher at 4,417.94. The benchmark has advanced 4.1% this month, its third monthly rise in a row and the longest winning streak in two years.

Volumes on the FTSE 100 were at about 82% of the index's 90-day average daily volume.

Miners and oil producers added most points to the index as prices of crude and metals gained on hopes of improving growth.

Oil majors BP and Royal Dutch Shell put on 0.5 and 0.9% respectively, while gas producer BG Group rose 4.5%.

In the mining sector, BHP Billiton, Rio Tinto, Lonmin, Xstrata, Anglo American, Antofagasta and Kazakhmys were up between 1.6 and 8.45.

Sentiment was lifted by the Nationwide building society's survey, which showed British house prices rose 1.2% in May, the second time in three months, slowing the annual rate of decline to its lowest since August.

Figures also showed British consumer confidence held steady in May as rising gloom over the economy was offset by an improvement in Britons' expectations for their own finances.

"It's likely to remain in this range (of 4,300 to 4,500). If it breaks through 4,300 or 4,500, we will probably see a new leg in either direction," said Jawaid Afsar, trader at Securequity.

The FTSE 100 has been trading in that range in the past four weeks. The index is still down 0.4% this year despite rallying 28% since hitting a six-year trough on March 9.

"But the market is very well supported at 4,300 and I would not expect it to fall back," Afsar said, adding that even though activity was thin, there was a general upward bias in the market.

Apart from the UK data, Japanese factory output, German retail sales and Indian GDP also raised hopes that the global economy was responding after months in intensive care.

The U.S. economy also contracted slightly less than initially estimated in the first quarter, data showed.

But business activity in the U.S. Midwest shrank in May at a far more severe rate than expected, with hiring in the deep-freeze in what many analysts saw as fallout from the collapsing auto sector.

With the stronger than expected UK house prices, sterling hit its highest level against the dollar since early November.  But the pound's rally had not curbed equities.

"I don't think it's enough to put people off buying UK assets per se because they're still quite lowly rated compared to where they've been historically," said Andrew Bell, strategist at Rensbury Sheppards Investment Management.

Banks were other standout gainers on Friday, with Barclays, HSBC, Lloyds Banking Group, Standard Chartered and Royal Bank of Scotland up 1.4% to 4.6%.

Thomas Cook fell 3.3%. Its debt-laden parent Arcandor lost 10.8% after a report said the German retail and tourism group did not meet the requirements for state aid.  Arcandor was not immediately available for comment.

Shares in water company Severn Trent lost 1.8% after its full-year results failed to excite.

Other defensive stocks, such as cigarette makers and food retailers, were also down. Imperial Tobacco lost 2%, mobile phone operator Vodafone eased 1% and Sainsbury shed 2.7%.

EUROPE - European shares closed higher on Friday with oils and miners rising on stronger commodities prices, though mixed economic news from the United States limited gains.

The FTSEurofirst 300 index of top European shares rose 0.2% to a provisional close of 862.2 points.

Over the week, the index gained 0.7%. In May, it rose 4.1%, a third straight monthly gain and its best winning streak in two years. "There's some momentum that could last for another couple of months," said Georgina Taylor, equity strategist, Legal & General Investment Management. "But due to the rally, I think the market has become more sensitive to newsflow."

"The story is still the same", said Taylor, "but the movements may be smaller in magnitude. On the whole, data is surprising on the upside."

Oil and gas stocks were among top gainers as the price of crude oil CLc1 rose to a six-month high of more than $66 a barrel, boosted by economic optimism.

BG Group rose 5.1%, Total, BP, Royal Dutch Shell, Repsol and StatoilHydro rose between 1.3 and 2.6%.

Likewise, miners gained after copper and gold gained, with the latter boosted by the dollar falling to a five month low against a basket of currencies.

Anglo American, Antofagasta, BHP Billiton, Lonmin, Rio Tinto and Xstrata rose between 2.4 and 8.1%.

U.S. gross domestic product, which measures total goods and services output within U.S. borders, dropped at a 5.7% annual rate, the Commerce Department said, less than the 6.1% estimated by the government last month. The economy contracted at a 6.3% pace in the fourth quarter.

But business activity in the U.S. Midwest contracted in May at a much more severe rate than expected, reversing an unexpectedly strong result last month.

PROPERTY – UK House prices rose for the second time in three months in May, the consumer mood steadied and a top retailer enjoyed its best week this year, further signs the economy may have begun the long road to recovery.

The government said its scheme to help the ailing car industry was already starting to bear fruit, having boosted sales by 35,000 since its introduction following the April Budget.

But analysts warned against getting too carried away, arguing that the Bank of England still has its work cut out to get a weak economy growing again before the end of the year.

The Nationwide building society said the average house price rose 1.2% during May, the second rise since March when house prices turned higher for first time since October 2007.

The annual rate of decline slowed from 15% to a nine-month low of 11.3%.

"Today's reading, while stronger than expected, is broadly consistent with the improving mood music in the housing market," said Colin Ellis, European economist at Daiwa Securities.

"However, in the last housing collapse there were several months where prices rose, so we should not get our hopes up too high. Any recovery is likely to be gradual and protracted, rather than swift and sharp."

FRANKFURT - Puma, the world's third-largest sporting goods maker, is still assessing its retail portfolio and has not yet made a decision on which stores may close, the company said on Friday.

"At this point in time, no assumptions should be drawn for any store to be discontinued," it said in a statement.

Puma is streamlining its operations, gearing up to weather Germany's sharpest recession since World War Two.

German retail sales rose unexpectedly in April but worries persist the downward trend is far from over. Unemployment rose for the seventh month running in May and hundreds of thousands of workers are now on shortened hours.

The global recession has also hit industry bellwether Nike and runner-up Adidas, both of which have launched restructuring programmes in recent weeks that include job cuts. Puma so far said it aims to keep its global workforce at last year's level.

US MARKET - U.S. stocks were mostly flat on Friday as rising oil prices lifted energy stocks and investors digested a mixed bag of data, including regional business activity and consumer sentiment.

Investors have been concerned this week that a steady rise in the price of oil as well, as creeping interest rates in the bond market, could eventually put pressure on the consumer and slow down a much hoped-for economic recovery.

Chevron Corp, up 0.7% to $66.25, was among the top risers in the Dow industrial average as U.S. crude oil futures topped $66 a barrel, as a slumping dollar helped build on momentum following this week's lower oil inventory data and OPEC's decision to keep output steady.

The weak dollar also helped boost companies with international operations, expected to benefit when they repatriate foreign earnings, as well as companies with exposure to commodities. Coca Cola Co was the top boost to the Dow, up 1.9% to $47.79, while Freeport McMoran Copper and Gold Inc added 3.3% to $53.91.

U.S. gold futures touched $980 an ounce on Friday to a fresh three-month high, while benchmark 10-year Treasury notes were on pace for their worst two-month sell-off since 2003 despite recovering slightly on Friday.

"We need to absolutely watch this because we start to put additional pressure on the consumer by virtue of higher gasoline prices and higher borrowing costs," said Craig Peckham, equity trading strategist at Jefferies & Co in New York. "I think it threatens at least the timing of the recovery."

The Dow Jones industrial average lost 11.15 points, or 0.13%, at 8,392.65. The Standard & Poor's 500 Index .SPX rose 0.76 points, or 0.08%, at 907.59. The Nasdaq Composite Index fell 4.11 points, or 0.23%, at 1,747.68.

On the economic front, data from the Institute of Supply Management-Chicago showed that business activity in the U.S. Midwest contracted at a much more severe rate than expected in May.

Further muddling the picture was the Reuters/University of Michigan Surveys of Consumers, which showed consumer confidence in May improved to its highest level since last September, boosted by hopes the government's economic stimulus plan will help lift the economy out of the recession.

Before the market open, a Commerce Department report showed that the U.S. economy contracted in the first quarter at 5.7% annual rate, slightly less than initially estimated by the government earlier in the quarter, while corporate profits rebounded.

Wall Street estimates, however, were for a 5.5% contraction.

Shares of General Motors plunged more than 20% to $0.89 as GM hurtles toward a government-imposed Monday deadline to achieve sweeping restructuring or face bankruptcy.

Analysts have been concerned about the far-reaching implications a GM bankruptcy could have on the auto industry and the global economy.

Since hitting a 12-year low in early March, the Dow has gained more than 28% and the S&P 500 has risen 34%.

LUXEMBOURG - Volatility in foreign exchange markets is still too high and a lot of the moves are irrational, the chairman of euro zone finance ministers, Jean-Claude Juncker, said on Friday.

"I never comment on foreign exchange rates because we don't have a foreign exchange policy in the EU, but I have to regret that volatility in foreign exchange rates is still too high," Juncker said.

Juncker, who chairs monthly meetings of euro zone finance ministers and the European Central Bank, was speaking to reporters before a financial forum in response to a question on the strength of the euro .

Juncker said irrational behaviour in markets did not help economic recovery.

"There is a lot of irrationality in the markets. That is not helpful for an organised economic recovery," he said.

MOTOR INDUSTRY - The UK car scrappage scheme has boosted sales by 35,000 vehicles since its introduction following the April Budget, the government said on Friday.

British car sales have been falling sharply this year as the recession has cut into household and business budgets.

Concerted industry pressure resulted in the introduction of a 300 million pound government scrappage scheme, which lets motorists trade in cars more than 10 years old for a 2,000 pound subsidy against a new model.

The scheme relies on industry to match the government funding -- splitting the 2,000 pounds subsidy between the two.

One in five orders in the first two weeks of the scheme, which runs from May 18 to March 2010 or until the funding is used up, were scrappage orders, the government said.

New car registrations fell an annual 24% in April to 133,475 units, according to the latest figures from the Society of Motor Manufacturers and Traders.

Indices

Exchange:                    FTSE 100 Index

Price:                           4,417.94

Today's Change:          30.40 (0.69%)

Prev Close:                  4,387.54

52-Wk High:                  6,130.50

52-Wk Low:                  3,460.71

Exchange:                    DJ INDUSTRIAL AVERAGE

Price:                           8,500.33

Today's Change:          +96.53 (1.15%)

Prev Close:                  8,403.80

52-Wk High:                  12,726.70

52-Wk Low:                  6,469.95

Exchange:                    NIKKEI STOCK AVERAGE 225

Price:                           9,522.50

Today's Change:          +71.11 (0.75%)

Prev Close:                  9,451.39

52-Wk High:                  14,601.30

52-Wk Low:                  6,994.90

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